Sunday, May 31, 2009

Markets diverge in last 2 months

There have been disconnects growing between yield sectors of the markets. The outstanding performer has been MLPs, reaching levels not seen since the end of Sep. High yield (junk) bond funds have rebounded sharply from their lows around 6 months ago & the Barclay High Yield Index understates the recovery for many individual funds. But REITs have had a tougher go of it in recent weeks. The most troubling is TNX, the yield on the 10 year Treasury bond. Even with the bond yield decline on Fri, this critical yield has risen sharply. That's troubling! Now the markets will have to deal with the bankruptcy of General Motors (GM). It seems like the markets are sailing into headwinds.

GM prepares for bankruptcy protection announcement- AP

Alerian MLP Index --- 2 months

Dow Jones REIT Index --- 2 months

Barclays Hi Yld Bond - 2 months

10-Year Treas Yld Index - 2 months

Friday, May 29, 2009

Markets seesawed

Stocks hovered near the break even line, awaiting news on Mon about how the bankruptcy of GM will play out. There was buying at the close giving the Dow a gain of 96, advancers over decliners 2-1 & NAZ was up 22. Banks as leaders also were higher at the close.


% Change

This has been a stellar week for MLPs, ending with a gain for the index of 4 to the 226s today:

Alerian MLP Index --- 1 week

REITs & junk bonds were mixed to higher. Oil keeps moving up to new interim highs.

CLN09.NYM..Crude Oil Jul 09..66.38..Up 1.30

Treasury bond yields tumbled 20 basis points, down to 3.47%, pretty much wiping out the gains in the yield earlier in the week as fears about supply problems eased. However the yield still remains at high levels which must be troubling to the Federal Reserve.

Treasuries Advance for a Second Day as Supply Concern Eases May 29

10-Year Treasury Yield Index - 1 month

GM's union members (74%) agreed to the their revised contract & the bondholders are urged to agree to their new agreement which will give them 25% of the new company. GM stock is 80¢ (up a few pennies on the strong close).

After 2 good months, stocks traded sideways in May. Dow was range bound between 8.2-8.6K. MLPs had a great month:

Apr 30....210
May 29...226

Even the laggard Kinder Morgan stock (KMR) was up 1.91 to 45 going into the close (good enough for a 10% gain in May).

Dow Jones Industrials - 1 month

Markets drift aimlessly

While everybody awaits the GM bankruptcy announcement on Mon, there's not much to do today. Dow is down 23, advancers ahead of decliners 3-2 & NAZ is fell 6. Banks are drifting lower.


% Change

MLPs are benefiting from higher oil prices & growing acceptance by investors for high yield securities, up 2½ to 225 (another high in 2009). REITs are even today while junk bonds funds are up again. The pursuit of high of high yields is a dramatic turnaround from a few months ago when these securities were being thrown out the window. Junk bond funds are generally at their highest levels since the beginning of the plunge in early Oct.

Alerian MLP Index --- YTD

Oil continues to rocket ahead.

CLN09.NYM...Crude Oil Jul 09...66.11 ...Up 1.03

Consumer confidence improved in May reaching its highest level since Sep. Improved optimism may come from expectations about good coming from the stimulus package. The Reuters/Michigan Surveys of Consumers reported a final May reading on consumer sentiments of 68.7, above an early May figure of 67.9 & higher than the Apr reading of 65.1. However, consumers remain nervous about their finances with continuing high unemployment rates.

Confidence Among U.S. Consumers Increases to Highest Level Since September

The link below gives thoughts from bond guys who are questioning the administration's strategy of quadrupling the budget deficit to almost $2T which they say is responsible for higher yields on Treasuries. The Treasury sold a huge supply of notes/bonds this week with good but not great acceptance. The run up in the high yield sector is narrowing their yield spread over Treasury rates. While the spread for junk bond yields remains high, it's down to "only" 1000 basis points.

Bond Vigilantes Confront Obama Credibility as Bernanke Housing Aid Falters

10-Year Treasury Yield Index -- YTD

GM stockholders have not seen a sub $1 stock price since the depression:

GM shares fall below $1 for first time in 76 yrs

General Motors --- 1 week

Markets waffle, but bulls seem to be in command. After the run up on Mon, May 4 to 8,426, Dow is about 30 points lower as I write. The problem is that pressure from the rise in yields on Treasuries is not compatible with a rise in stock prices. Something has to give. Maybe GM's bankruptcy on Mon will help clear the disconnect.

Thursday, May 28, 2009

Stocks rise after Treasury debt auction

General Motors to File for Bankruptcy Protection June 1
General Motors Corp. plans to file for Chapter 11 bankruptcy protection June 1 and seek a sale of most of its assets to a newly formed company, people familiar with the plan told Bloomberg News. The automaker, which celebrated its 100th anniversary last year, will get U.S. Treasury financing while seeking the asset sale.

The above is the front banner copied from It looks like it is all over for GM & everybody involved is getting positioned to participate in the "new" GM. First things first, Dow Jones needs a replacement stock for the Dow Jones 30.

A committee of bondholders has agreed to a sweetened deal proposed by the gov to erase the automaker's unsecured debt in exchange for company stock. "Unidentified sources" have told about everybody that GM will file for bankruptcy on Mon.

Markets are taking the news well. Dow gained 103 (finishing near the highs of the day), advancers over decliners 2-1 & NAZ gained 20 (all in the PM). The S&P 500 was up 13, taking it into the black YTD. Banks are handling the news well, although they remain stuck in the 150+ sideways band.


% Change

MLPs benefited from higher oil prices. The index was up 3 to the 222s, the highest since early Oct when the index crashed. REITs were up & the Barclay junk bond ETF is also at its highest level since early Oct, bringing the yield down to 14.2%.

Alerian MLP Index --- 1 year

Barclays Capital Hi Yld Bond ETF-1 year

Oil gained again to a multi month high. Oil stocks & MLPs went along for the ride.

CLN09.NYM..Crude Oil Jul 09..64.88 ..Up 1.43

The Treasury sold $26B in 7 year notes at 3.3% yield. The yield was above the 3.263% traders forecast, a bad sign considering more bonds are coming to market. The bid/cover ratio fell to 2.26X from 2.28X at the last 7 year note sale. This ratio was the lowest since 2.11X on Feb. 26, 2009. Demand, especially from foreigners, is weaker for longer term notes. Indirect bidders, which includes foreign central banks, bought 33% of the notes sold, the same as at the prior auction. The 10 year Treasury bond rallied after the auction (1PM EDT) to 3.67%, reducing its yield 6 basis points. However, that yield remains at high levels. The graph below shows the increase in yield in just the last 2 weeks.

US Treasury 7-Year Notes Yield 3.3% at Auction May 28

10-Year Treasury Yield Index - 2 weeks

Markets are trying to charge forward, ignoring the GM bankruptcy & rising interest rates which are devastating for a housing industry trying to recover. Here's the S&P 500 over the last year:

S&P 500 ---- 1 year

Markets meander

Dow was not sure what to do as the GM bankruptcy approaches the month end deadline. It's up 29 at the moment, advancers ahead of decliners almost 3-2 & NAZ is up 3. Banks are doing well.


% Change

MLPs are going wild. The index is up to 221, another 2009 high. REITs & junk bond funds are up modestly.

Alerian MLP Index ---- YTD

Oil keeps climbing, now it's significantly above the 62 ceiling which was considered important by traders. Early this year the contract was around 40 as traders were wondering how low it would go into the 30s.

CLN09.NYM...Crude Oil Jul 09...64.25 ...Up 0.80

The delinquency rate on mortgages increased to 9.12% while the percentage of loans entering foreclosure rose to 1.37%. Both figures are the highest going back to 1972. One in every eight Americans is late on payments or already in foreclosure. Mortgage problems have shifted from a sub-prime issue to a job-loss problem. Meanwhile the rate on a 30 year fixed rate rose to 4.81%, up 8 basis points in the last week. The rate was 5.1% at the start of the year. The recession is biting hard. The yield on the 10 year Treasury fell 4 basis points to 3.65% today, but this high rate will drive next week's mortgage rate even higher.

Mortgage Delinquencies, Foreclosures Rise to Records in U.S. Amid Job Cuts
Mortgage Rates on 30-Year U.S. Fixed Loans Rise to 4.91%, Freddie Mac Says

General Motors (GM) said it offered bondholders 10% of GM's stock with warrants to buy up to 15% if they agree to support selling the company's assets to a new company under bankruptcy court protection. GM said a committee of bondholders has agreed to the sweetened deal. Obviously the situation is fluid with the final outcome probably coming Sun night prior to the Jun 1 deadline.

GM Sweetens Offer to Bondholders- AP

Time Warner (TWX) will dump AOL by yearend, finally. AOL will be spun out as a separate company run by former Google (GOOG) exec, Tim Armstrong. TWX owns 95% of AOL & will buy out GOOG's 5% stake in the 3rd quarter. Then AOL will become a separate publicly traded company by year end. This will allow TWX to focus on its real businesses: movies, cable TV networks & magazines. TWX was down 22¢.

Time Warner Will Spin Off AOL Division, Undoing Failed $124 Billion Merger

Markets keep looking for direction with GM & housing problems on center stage.

Dow Jones Industrials --- 1 month

Wednesday, May 27, 2009

Stocks tumble on high Treasury bond yields

Stocks were lower on higher Treasury bond yields. Stock selling began after the Treasury sold a record number of 5 year Treasury notes at 1 PM Eastern time. Dow dropped 173, decliners over advancers 2-1 & NAZ fell 19. Banks felt the selling pressure, many banks lost 3-5%. Even Bank of America (BAC) was down pennies after their announcement this AM about raising capital.


% Change

The MLP Index pulled back into the 219s in the PM, but up slightly on the day. REITs were weak & junk bond funds mixed. The big story on bonds was in Treasuries.

$35B of 5 year Treasury notes were auctioned today at a yield of 2.31%, a little below an average forecast of 2.335%. Indirect bidders, the class that includes foreign central banks, bought 44.2% of the notes, compared with an average of 32.4% in the last 10 auctions. The so-called bid-to-cover ratio was 2.32X compared with a 2.17X average at the past 10 sales of the securities. Treasury securities fell for a 4th day, pushing 10-year bond yield to a 6 month high of 3.70% (up 20 basis points today), due to concerns that record debt sales will overwhelm investor demand as the economy begins to show signs of stability. The Treasury will sell $26B in 7 year notes tomorrow, the third auction this week. The Treasury raised a massive $720B selling Treasury securities this year, while the Federal Reserve has purchased $130B in U.S. debt.

Treasuries Fall on Concern Record Government Sales Will Overwhelm Demand

The rise in yields for the 10-year Treasury is extremely important as it's the benchmark for setting mortgage rates.

10-Year Treasury Yield Index - YTD

The FDIC said higher trading revenues & lower borrowing costs at big banks helped the industry earn a $7.6B profit in Q1, compared with a record loss of $36.9B in Q4 2008. However the profit was 61% below the $19.3B earned in the prior year. 8246 banks & thrifts set aside $60.9B in Q1 to cover potential loan losses, up from $36.2B in the prior year. Over 20% of banks & thrifts suffered a net loss in Q1. The crisis atmosphere has cleared, at least for the time being. But troubled loans continue to pile up on banks' books, banks still have challenges to face.

Oil had a good day, taking it above the crucial 62 resistant level:

CLN09.NYM..Crude Oil Jul 09..63.14 ..Up 0.69

After Dow's big gain on May 1, it hasn't been able to make headway in May. The S&P 500 sank 17 today, dragging it back into the red YTD.

Dow Jones Industrials --- 1 month

Markets nervous on possible GM bankruptcy

General Motor (GM) is weighing down markets. Dow is down 26, advancers are 10% ahead of decliners & NAZ is up 11. Banks were a little soft on mixed news from the FDIC vs Bank of America's (BAC) success raising capital:


% Change

The MLP Index was up 1 to the "magic" 220 number while REITs fell. Junk bond funds rose but Treasury bonds were weak. The 10-year Treasury bond dropped, taking the yield up 7 basis points to 3.56% (another recent high).

U.S. “problem” banks climbed 21% in Q1 to the highest total in 15 years according to the FDIC. 305 banks with $220B in assets were considered “problem” lenders in Q1, rising from 252 with $159B in assets in Q4, Because of bank failures, its insurance fund slumped 25 percent in the period. Bank problems are far from over.

`Problem' Banks in U.S. Climb to 305, Highest Level Since 1994, FDIC Says

Bank of America said it raised $5.9B thru the conversion of preferred shares for common stock as part of its objective to raise a total of $33.9B in capital. Combined with the sale of stock in China Construction Bank & recent common stock sales, BAC has now raised $26B as it works to meet the government requirement. BAC said none of the preferred shares converted to common stock were shares held by the gov & they said they hope to repay gov loans as soon as possible. The big banks look like they will be able to get the gov off their backs.

Bank of America Has Raised $26 Billion in Capital Since Stress-Test Result

General Motors said its offer to exchange $27B in debt for 10% of the company's stock had failed. The bonds tendered was "considerably less" than the 90% required. GM has 5 days to pull a rabbit out of a hat to avoid bankruptcy. GM has already received $19.4B loans from the gov. Meanwhile Chrysler asked the bankruptcy judge to sell the bulk of its assets to Fiat Group.

GM Bondholders Reject Offers to Swap Debt for Equity, Hastening Bankruptcy

GM may be a key driving force for the markets thru the end of May.

Dow Jones Industrials -- 1 month

Tuesday, May 26, 2009

Markets hold gains

Markets started strong & held that advance all day. Dow was flattish at roughly plus 200 & closed up 196, advancers over decliners 4-1 & NAZ rose 58 (3½%) for a very strong day. In the financials, Bank of America (BAC) slipped pennies but most of the others were up 3-5%. The Financial Index remains more than double the lows of early Mar, but continues to bob around sideways at 150+ in May.


% Change

The Alerian MLP Index gained 2+ bringing it 219. REITs had a very impressive gain, up 8 (over 6%), junk bonds were up modestly although the Barclay's Capital High Yield slipped bringing its yield to 14.4%. The VIX fell 1½ taking it below 31.

Dow Jones REIT Index -- 2 months

Oil had a good day taking it into the 62s, what is viewed as a key resistance level.

CLN09.NYM..Crude Oil Jul 09..62.45 ...Up 0.78

The Treasury had a very successful 2 year auction, important at a time when there will be many more big auctions for their growing needs to sell notes/bonds. Today they sold a record (really tying a previous record) $40B of 2 year notes at a 0.94% (annualized) interest rate, below the expected rate of 0.969%. The favorable rate was due to a bid-to-cover ratio of 2.94X vs 2.43X average at the last 10 auctions. In other words, they could have sold triple the number of bonds at this interest rate. 54% of the notes were bought by indirect bidders (foreign banks) vs an average of 35% at the previous 10 auctions for this note. Meanwhile the 10-year Treasury bond yield rose 4½ basis points to over 3.49%. A key difference between the 2 issues is the 2 year notes have very little inflation risk attached versus the 10 year bond where it is a major concern.

Treasury's Record Tying Two-Year Note Auction Eases Foreign Demand Concern

10-Year Treasury Yield Index -- YTD

General Motors will have to really sweat out getting cooperation from the bondholders. They needed 90% approval, early indications are they are only are getting "single digits." Another way to describe the acceptance is, a little above zero. Meanwhile they have gotten some cooperation from the unions. Just 5 days left for them.

GM Bondholders Nix Tender Offer; Bankruptcy Nears- Reuters
GM Cuts Stock Due to UAW Health-Care Trust by 55%, Boosting Equity Reserve

Dow keeps plodding along. After cracking 8K, it has stalled out 500 points above. The dark cloud of massive gov deficits is holding back the advance.

Dow Jones Industrials --- YTD

Stocks higher on improved consumer confidence

Markets liked data showing consumers are feeling better about the economy. Dow jumped 154, advancers over decliners 4-1 & NAZ was up 43. The market leader, banks, are having a so-so day.


% Change

MLPs are up 1¾ but the REIT index gained 5. Junk bonds funds were only mixed & the VIX, volatility index, dropped 2 to the 30s. Oil was down pennies, still in the 61s. Oil bulls hope this is a stepping stone for higher prices.

Alerian MLP Index --- 2 weeks

The Conference Board said the Consumer Confidence Index shot past expectations to 54.9 in May, up from 40.8 in Apr (which also had a large increase). Economists were expecting only 42.3. This is the highest reading in 8 months (when the level was 61.4). It also approximated 58.1, last year's number. Consumers are clearly less pessimistic than they have been & expectations are that business conditions, including labor market & incomes, will improve in the coming months. Confidence is still weak based on historic standards, but consumers may feel the worst is behind us.

Consumer Confidence in U.S. Increases to the Highest Level Since September

General Motors (GM) is struggling to avert bankruptcy, but that will probably drag on until the last hour of May. This AM, on Bloomberg TV, a rep from the bondholders was hanging in very tough. They are not happy about getting only 10% off the new company, not to mention they have ugly thoughts about the gov running the company.

GM Bondholder Sion Says Exchange Offer Not 'Equitable' Video

Markets are happy
. Let's see where the bulls take us.

Dow Jones Industrials --- 1 month

Friday, May 22, 2009

Markets end week on a whimper

Selling into the close cost the markets gains they held during much of the day. Dow dropped 15, advancers ahead of decliners 3-2 & NAZ fell 3. Dow's gain for the month is less than 200 & that's due to a May 1 rally. Banks, the market leaders, just muddled along:


% Change

In light trading, price moves don't mean much. The Alerian MLP Index had a .14 gain (at these high levels, they're still entitled), REITs were soft & junk bond were mixed. Treasuries had a very bad day. The 10 year Treasury dropped sharply, sending the yield up to 3.45%. This chart shows the rise in yields in 2009 (put a decimal in between the 2 digits). The hike in yield will be seen in mortgage rates shortly.

10-year Treasury Yield Index - YTD

Traders took oil higher betting on favorable driving numbers for the first weekend of driving in the summer season. Expectations are for a 1½% increase, but that is off a depressed level last year.

CLN09.NYM..Crude Oil Jul 09..61.46 ..Up 0.41

California led the country in job losses for Apr, losing almost 64K jobs sending their jobless rate to 11%. There was no new news about California's budget crisis, but they are getting desperate. The muni market has been helpful, bond prices have been rising (reducing yields or costs to the issuers). But California is facing a whopper size problem. Speaking of enormous financial problems, GM execs won't be getting time off this weekend. Expectations are that their fragile situation could drag on to the last minute on May 31.

I'll leave you with YTD charts for popular averages followed here. And everybody should

Have a Happy Holiday weekend!!!

Dow Jones Industrials --- YTD

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

Barclay High Yld Bond ETF - YTD

VIX ---- YTD

Stocks higher in limited trading

In semi-holiday trading, Dow was up 64, advancers ahead of decliners 2-1 & NAZ gained 10. Banks have led the charge in the rising markets, but are little changed today. The financial index has been hovering above the 150 level all month, mirroring the sideways trading in the stock markets.


% Change

On a quiet day, the Alerian MLP index is making another push up, shooting for 220. Today it's up 2 into the 218s. REITs & junk bond funds are little changed while the VIX is down slightly on this calm day.

Alerian MLP Index --- 2 weeks

Oil is just sputtering with little change ahead of the long weekend. Gas at the pump averaged 2.39 yesterday, up from 2.33 two days ago.

Treasury yields shot up again dragging down bond prices. They will have their worst week since Jan. The 10 year Treasury bond yield rose 5 basis points to 3.40%. Higher rates on this bond will impact new mortgage loans, just another kick in the head the housing industry, which is trying to recover, does not need. The sharp decline in bond prices has happened despite the Federal Reserve's large bond buying program (hate to think how high yields would be without those purchases). Worries about the Treasury losing its AAA credit rating due to massive new borrowings are behind the decline in bond prices.

Treasuries Heading for Weekly Loss on Looming Supply, U.S. Credit Concern

The administration is not happy about pay practices at financial companies & is pushing for changes. But Tim Geithner, Treasury Secretary, ruled out setting specific caps on pay & declined to infringe on compensation contracts already agreed to. However changes involving more gov meddling have the potential to bleed thru to the markets.

Geithner Calls for `Very Substantial' Change in Wall Street Pay Practices

BankUnited failed, the 34th seizure this year & will cost the FDIC almost $5B. FDIC sold the assets to private-equity firms including WL Ross & Co. & Carlyle Group in the largest U.S. bank failure of 2009. Bank problems are not going away any time soon.

BankUnited Shuttered, Assets Sold to Kanas-Led Group

Dow has had a tough time making progress in the last 2 months.

Dow Jones Industrials --- 2 months

Thursday, May 21, 2009

AAA credit worries dominate trading

Markets tumbled on the opening & never recovered. Dow dropped 130, decliners over advancers 3-1 & NAZ fell 32. Banks got off lightly in today's selling in stock markets & Treasury bonds:



% Change

Markets may have been spooked by the possibility that US could lose its AAA credit rating after the UK's credit rating was put on a watch list earlier today. Bill Gross, head of Pimco, said that was driving the selling.

The MLP Index slipped a couple to the 216s, they're entitled. The REIT index was even while junk bond funds were soft. Treasuries were weak, the 10 year Treasury yield rose 15 basis points to 3.35% (at the start of the year the yield was a record low, near 2.1%). Growing supply problems are nagging this market. The VIX, shot up 3.32 (8%) to 31.35, on growing fears in the markets.

Treasuries Fall After Fed’s Purchase of Debt as Supply Looms

Oil recovered a little in the PM, remaining near the 62 ceiling ahead of the important long driving weekend.

CLN09.NYM..Crude Oil Jul 09..60.97 ..Down 1.07

The United Auto Workers union announced it has a deal with General Motors (GM), however no details were given. Union members still have to approve the deal. GM is up a very big 47¢. However, GM still needs bondholders to swap at least 90% of their $27B in bonds for new stock. GM plans to close an additional 16 factories, costing 21K jobs,

Tim Geithner, Treasury Secretary, said the $700B financial rescue package can’t be used to aid municipalities & states to help solve budget problems. The biggest hurdle is that TARP is reserved for financial companies. California, I think they said the 6th biggest economy in the world, is rapidly running out of money because massive spending programs are not being supported by declining tax revenues. They are desperate for help.

Geithner Says TARP Can’t Help US States Solve Budget Crises

The last 6 months have been very good for the MLP Index (shown in the line). But Kinder Morgan (KMR, the stock equivalent), shown with the bar graph, continues to have a difficult time finding friends. Today KMR was up 21¢ to 41.62. They are the largest MLP, have raised $2B in financing during this period & are paying a record $4.20 (record) distribution to the unit holders. Why have they been left behind the MLP rally?

Kinder Morgan vs AMZ Index - 6 months

Dow spent Apr clinging to the 8K line, then broke thru. But in May it has been in a narrow trading range just above 8K. The Dow is down 250 from its high early yesterday morning.

Dow Jones Industrials ---- YTD

Stocks fall on UK credit worries

Stock have been weak all morning. Dow fell 139, decliners over advancers 4-1 & NAZ is down 34. But banks are not leading the decline, they're getting a break. As the index shows, banks are mixed with little changes.


% Change

The Alerian MLP index dropped 3 to 216, probably from lower oil prices. The REIT index dropped only 1 while junk bond funds were weak. The VIX, volatility index, jumped 2, pushing for 31. It had been dropping all year, to 27, on easing fears.

VIX ---- 1 week

Oil backed off the 62 ceiling as markets are trying to assess how badly higher gas prices will affect demand over the first holiday weekend. Gas at the pump was 2.36 yesterday, up 30¢ in the last month.

CLN09.NYM...Crude Oil Jul 09...60.28 ...Down 1.76

The number of new jobless claims dropped slightly last week after increasing due to auto layoffs, continuing jobless claims approached 7M. The labor market likely will remain weak into 2010. Initial claims for jobless benefits fell to 631K, down 10K from the previous week. More auto shutdowns will be lifting claims in the coming months.

Jobless Claims in U.S. Are Higher Than Estimated; Benefit Rolls at Record

Standard & Poor's revised the outlook for Great Britain's credit rating to negative from stable. The rating agency reaffirmed the country's long-term credit rating at "AAA" and its short-term rating at "A-1+," but said the outlook had deteriorated because of massive borrowing to deal with the recession & the banking crisis. The FTSE share index fell more than 120 points (2.7%). A lower credit rating would require the government to pay higher interest rates for borrowings. S&P said 37% of its negative outlooks were followed by a downgrade. Such concern raises doubts about the ability of the UK to raise record amounts of money by issuing more debt

U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP

The Treasury Department will lend GMAC $7B, making GMAC a sort of federal entity which offers low-interest loans to buyers of GM & Chrysler cars. This follows GMAC failing the "stress test" a few weeks ago. The Treasury mandated that GMAC must raise $11½B within 6 months (after receiving $5B from TARP in Dec). In exchange for that funding, the gov received 5M GMAC shares, giving the Treasury more control over GMAC. This includes telling GMAC that it must extend financing services to bankrupt Chrysler LLC. The big picture is the gov is telling this business what to do. Expanded authority may be used at other companies where the gov is also a major shareholder. The banking arm of GMAC changed its name to Ally Bank last week, in an effort to repair its tarnished image & attract customers.

GMAC Said to Get More Than $7 Billion in Aid to Fund Chrysler, GM Lending

After the Dow cracked the 8K ceiling, it's still having a difficult time trying to make headway.

Dow Jones Industrials --- 1 month

Wednesday, May 20, 2009

Bears return, selling into the close

After strong gains on Mon, markets have been rethinking economic conditions. Dow started the day strong but retreated to near break even for most of the day. Selling in the final hour gave the Dow a 52 loss, advancers over decliners settled back to a more modest 15% advantage, & NAZ was down 6. The banking index, 2 weeks ago, briefly went over the 169 starting point for this year, but then fell back to sideways trading below that level. Today, banks led the market, this time down. Bank of America (BAC) began with a big 1 point advance on the news about selling stock, but fell back to a 25¢ gain. Most big name banks were lower.


% Change

The Alerian MLP Index keeps charging forward, up 3.19 to 219 (briefly going over 220), but got caught up in late day selling. Oil hitting 6 month highs may be fueling this buying spree for MLPs.

Alerian MLP Index --- 2 weeks

The REIT index slipped 1. The picture for rents is bleak over the next year. Rents for office space are likely to drop 7.2% this year, rents for industrial space may be down 3.4% while retail properties should decline 2.1%. 2010 will probably have smaller declines, but off a low base. The high unemployment rate (8.9% in Apr) is at the root of this dreary forecast. Vacancy rates for all categories are expected to be well in double digits this year & next. Real estate in a decade is supposed to have 2 good years, 2 bad years & the others are middle kind of years. These 2 (really 3) years are brutal, however the industry should recover. The hard part is keeping the faith during rough times.

US Property Rents, Occupancies Forecast to Drop Through 2010 May

Dow Jones REIT Index --- 1 decade

Junk bond funds were weak after nice gains in recent days. The VIX fell more than 2 taking it into the 26s, but rallied to close at a modest gain, just above 29 as fears picked up. Oil had another big day, bringing it near the 62 technical area many are watching:

CLN09.NYM..Crude Oil Jul 09..61.82 ..Up 1.72

General Motors (GM) has 3 bids on its Opel division in Germany. GM's clock keeps ticking!

General Motors Says Opel Unit Attracted Three Bids

Markets had a big rally on Mon, followed by 2 mushy days. Both days featured selling into the close, not a good sign.

Dow Jones Industrials --- 2 days